by Calculated Risk on 10/04/2016 06:55:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Rise Quickly on Overseas Concerns

Mortgage Rates moved significantly higher today, relative to recently narrow ranges. It's enough to bring the most prevalent conventional 30yr fixed quote back up to 3.5% (from 3.375%) on top tier scenarios. ... The source of today's panic is speculation that Europe is getting closer to its own version of "tapering." This refers to the gradual reduction in the amount of bonds being purchased by central banks. In the US, the "taper tantrum" in mid 2013 was the result.
emphasis added

Wednesday:
• Early, Reis Q3 2016 Mall Survey of rents and vacancy rates.

• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:15 AM, The ADP Employment Report for September. This report is for private payrolls only (no government). The consensus is for 170,000 payroll jobs added in September, down from 177,000 added in August.

• At 8:30 AM, Trade Balance report for August from the Census Bureau. The consensus is for the U.S. trade deficit to be at $39.0 billion in August from $39.5 billion in July.

• At 10:00 AM, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for August. The consensus is a 0.2% decrease in orders.

• Also at 10:00 AM, the ISM non-Manufacturing Index for September. The consensus is for index to increase to 52.9 from 51.4 in August.

by Calculated Risk on 10/04/2016 02:52:00 PM

The Fed's Household Debt Service ratio through Q2 2016 was released last week: Household Debt Service and Financial Obligations Ratios. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.

These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. Note: The Fed changed the release in Q3 2013.

The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income.

The DSR is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR.

This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:

The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only an approximation of the debt service ratio faced by households. Nonetheless, this approximation is useful to the extent that, by using the same method and data series over time, it generates a time series that captures the important changes in the household debt service burden.

Click on graph for larger image.

The graph shows the Total Debt Service Ratio (DSR), and the DSR for mortgages (blue) and consumer debt (yellow).

The overall Debt Service Ratio increased slightly in Q2, and has been moving sideways and is near a record low.  Note: The financial obligation ratio (FOR) was unchanged in Q2 and is also near a record low (not shown)

The DSR for mortgages (blue) are near the low for the last 35 years.  This ratio increased rapidly during the housing bubble, and continued to increase until 2007. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined significantly.

The consumer debt DSR (yellow) has been increasing for the last three years.

This data suggests aggregate household cash flow has improved.

by Calculated Risk on 10/04/2016 11:59:00 AM

Reis reported that the apartment vacancy rate was at 4.4% in Q3 2016, unchanged from Q2, and up from 4.3% in Q3 2015. The vacancy rate peaked at 8.0% at the end of 2009, and bottomed at 4.2% in 2014 and early 2015.

A few comments from Reis Economist Barbara Denham:

For the sixth quarter in a row, new construction exceeded net absorption in the apartment market but only by a slim margin: 37,744 in completed units to 37,693 absorbed units. ... While there is a chance that the vacancy rate for the third quarter could still increase once the data is finalized, we had anticipated this and do not fear that rent growth will slow dramatically. In fact, rent growth in the third quarter, 0.9%, was in line with our forecasts and demonstrates the health of the apartment market. New construction should continue to exceed net absorption in most of the coming quarters ...
...
Asking and effective rents both grew by 0.9% during the third quarter, slightly below last quarter's growth of 1.1% and well short of the post-recovery high of 1.7% quarterly growth rate seen in Q3 2015. We had expected rent growth to slow so do not view this deceleration as cause for alarm. In fact, the gap between asking rents and effective rents - that net out concessions such as free rent - has not widened in the last few quarters which suggests that landlords generally remain confident that conditions will continue to improve in the wake of stronger job growth, although rents have declined in a few of the top submarkets.

The deceleration in rent growth is seen in the year-over-year growth rates. Since Q3 2015, asking and effective rents have grown 3.8%, a decline from the 4.6% year-over-year growth in asking rents and 4.5% growth rate in effective rents.
...
Market conditions in the apartment market softened a bit in the third quarter, a period they generally see the highest activity and strongest rent growth. We had expected this deceleration given the robust construction underway throughout the U.S. Evidence that recent multifamily permits have slowed considerably suggests that developers, and likely lenders, are concerned about leasing the plethora of units expected to come online in the coming year or so.
emphasis added

Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.

The vacancy rate had been mostly moving sideways for the last few years.  Now that completions are catching up with starts, the vacancy rate has started to increase a little.

This suggests rent growth - and multi-family starts - will slow a little.

Apartment vacancy data courtesy of Reis.

by Calculated Risk on 10/04/2016 09:47:00 AM

Notes: This CoreLogic House Price Index report is for August. The recent Case-Shiller index release was for July. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic US Home Price Report Shows Prices Up 6.2 Percent Year Over Year in August 2016

Home prices nationwide, including distressed sales, increased year over year by 6.2 percent in August 2016 compared with August 2015 and increased month over month by 1.1 percent in August 2016 compared with July 2016, according to the CoreLogic HPI.
...
“Home prices are now just 6 percent below the nominal peak reached in April 2006,” said Dr. Frank Nothaft, chief economist for CoreLogic. “With prices forecasted to increase by 5 percent over the next year, prices will be back to their peak level in 2017.”

“Housing values continue to rise briskly on stronger fundamental and investor-fueled demand, as well as lack of adequate supply,” said Anand Nallathambi, president and CEO of CoreLogic. “This continued price appreciation is contributing to a growing affordability crisis in many markets around the country.”
emphasis added

Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 1.1% in August (NSA), and is up 6.2% over the last year.

This index is not seasonally adjusted, and this was another solid month-to-month increase.

The index is still 6.0% below the bubble peak in nominal terms (not inflation adjusted).

The second graph shows the YoY change in nominal terms (not adjusted for inflation).

The YoY increase had been moving sideways over the last two years.

The year-over-year comparison has been positive for fifty five consecutive months since turning positive year-over-year in February 2012.

by Calculated Risk on 10/03/2016 05:46:00 PM

Based on a preliminary estimate from WardsAuto, light vehicle sales were at a 17.65 million SAAR in September.

That is down about 2% from September 2015, and up 4.3% from the 16.92 million annual sales rate last month.


Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for September (red, light vehicle sales of 17.65 million SAAR from WardsAuto).

This was above the consensus forecast of 17.4 million SAAR (seasonally adjusted annual rate).

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

Sales for 2016 - through the first nine months - are up slightly from the comparable period last year.

After increasing significantly for several years following the financial crisis, auto sales are now moving mostly sideways ...

by Calculated Risk on 10/03/2016 01:01:00 PM

Earlier today, the Census Bureau reported that overall construction spending declined in August:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during August 2016 was estimated at a seasonally adjusted annual rate of $1,142.2 billion, 0.7 percent below the revised July estimate of $1,150.6 billion. The August figure is 0.3 percent below the August 2015 estimate of $1,145.2 billion.

Private spending and public spending decreased in August:

Spending on private construction was at a seasonally adjusted annual rate of $871.6 billion, 0.3 percent below the revised July estimate of $874.6 billion. ...

In August, the estimated seasonally adjusted annual rate of public construction spending was $270.5 billion, 2.0 percent below the revised July estimate of $276.0 billion.
emphasis added

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Residential and public spending have slumped a little recently.

Private residential spending has been generally increasing, but is 34% below the bubble peak.

Non-residential spending is now 2.0% above the previous peak in January 2008 (nominal dollars).

Public construction spending is now 17% below the peak in March 2009, and only 3% above the austerity low in February 2014.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is up 1%. Non-residential spending is up 4% year-over-year. Public spending is down 9% year-over-year.

Looking forward, all categories of construction spending should increase in 2016. Residential spending is still fairly low, non-residential is increasing - although there has been a recent decline in public spending.

This was well below the consensus forecast of a 0.3% increase for August.

by Calculated Risk on 10/03/2016 11:31:00 AM

Reis released their Q3 2016 Office Vacancy survey this morning. Reis reported that the office vacancy rate declined to 16.0% in Q3, unchanged from 16.0% in Q2. This is down from 16.4% in Q3 2015, and down from the cycle peak of 17.6%.

From Reis Senior Economist and Director of Research Ryan Severino:

The national vacancy rate was unchanged in the third quarter at 16.0%. It had fallen for the eight previous quarters. While one quarter does not make for a trend, the year's overall performance has been lackluster. Vacancy has fallen only 20 basis points year to date, in 2015 the vacancy rate fell 40 basis points. ...

For the third consecutive quarter, the absolute levels of construction and absorption declined. While any pullback in a given quarter should not be viewed with alarm, the second consecutive quarterly deceleration was a bit surprising, particularly on the demand side. Once again, new supply exceeded net absorption this quarter which was unexpected. Only conversion activity prevented the national vacancy rate from increasing during the quarter. Net absorption had been outpacing new construction so consistently over the last two years that this second quarter of a reverse in this trend – new supply exceeding net absorption – was somewhat concerning.
...
Both asking and effective rents growth decelerated to 0.3% and 0.4%, respectively from 0.6% growth (for both) in the previous quarter, the twenty-third consecutive quarter of asking and effective rent growth. The 12-month changes for asking and effective rent growth both also slowed slightly versus the figures from the last two quarters.

Click on graph for larger image.

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis reported the vacancy rate was at 16.0% in Q3.  The office vacancy rate is remains elevated.

Office vacancy data courtesy of Reis.

by Calculated Risk on 10/03/2016 10:03:00 AM

The ISM manufacturing index indicated expansion in September. The PMI was at 51.5% in August, up from 49.4% in August. The employment index was at 49.7%, up from 48.3% in August, and the new orders index was at 55.1%, up from 49.1% in August.

From the Institute for Supply Management: September 2016 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in September following one month of contraction in August, and the overall economy grew for the 88th consecutive month, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. "The September PMI® registered 51.5 percent, an increase of 2.1 percentage points from the August reading of 49.4 percent. The New Orders Index registered 55.1 percent, an increase of 6 percentage points from the August reading of 49.1 percent. The Production Index registered 52.8 percent, 3.2 percentage points higher than the August reading of 49.6 percent. The Employment Index registered 49.7 percent, an increase of 1.4 percentage points from the August reading of 48.3 percent. Inventories of raw materials registered 49.5 percent, an increase of 0.5 percentage point from the August reading of 49 percent. The Prices Index registered 53 percent in September, the same reading as in August, indicating higher raw materials prices for the seventh consecutive month. Manufacturing expanded in September following one month of contraction in August, with nine of the 18 industries reporting an increase in new orders in September (up from six in August), and 10 of the 18 industries reporting an increase in production in September (up from eight in August)."
emphasis added

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was above expectations of 50.2%, and suggests manufacturing expanded in September.

by Calculated Risk on 10/03/2016 08:00:00 AM

Black Knight Financial Services (BKFS) released their Mortgage Monitor report for August today. According to BKFS, 4.24% of mortgages were delinquent in August, down from 4.87% in August 2015. BKFS also reported that 1.04% of mortgages were in the foreclosure process, down from 1.48% a year ago.

This gives a total of 5.28% delinquent or in foreclosure.

Press Release: Black Knight’s Mortgage Monitor: 42 Percent of Q2 2016 Refinances Were Cash-Out Transactions, Largest Quarterly Sum of Equity Tapped Since 2009

Today, the Data & Analytics division of Black Knight Financial Services, Inc. released its latest Mortgage Monitor Report, based on data as of the end of August 2016. This month, Black Knight took a close look at mortgage refinance activity through the first half of 2016. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, borrowers are continuing the trend of drawing upon growing equity in their homes, though at nowhere near the levels at which they had pre-crisis.

“The roughly 350,000 cash-out refinances in Q2 2016 accounted for 42 percent of all refinances in the quarter, and marked the ninth consecutive quarterly increase in cash-out lending, not only by count, but also by the amount of equity tapped,” said Graboske. “At $22.6 billion, that works out to approximately $65,000 in equity tapped per borrower. While that per-borrower number is slightly down from Q1 2016 – but $6,000 higher than one year ago – the $22.6 billion total is the largest equity sum tapped since Q2 2009. Just to put that into perspective, though, it’s still a nearly 80 percent lower equity draw than at the peak in Q3 2005. And, given that we saw over $550 billion in tappable equity growth last year alone, this equates to borrowers only tapping into 15 percent of the growth in equity over the past 12 months, without even touching the $4.5 trillion balance in tappable equity available. All in all, it’s clear that cash-outs are helping to prop up the refinance market – their 42 percent share is up from only 30 percent in early 2015 when interest rates had also dropped. What’s more, refi volumes are down from 2015 – at least through the second quarter – but while overall they’re down nine percent from Q1 2015, rate/term refinances are actually down 25 percent over that same period.

“Today’s cash-out refinance borrowers continue to present a relatively low risk profile, historically speaking,” Graboske continued. “The average credit score of 748 among Q2 2016 cash-out refinance borrowers is 67 points higher than that of the low point recorded in Q3 2006, and is in fact nearly 60 points higher than the overall average credit score from 2005 through 2007. In addition, post-cash-out loan-to-value ratios remain low. At 66 percent, it’s slightly higher than in Q1 2016, but it’s the second lowest quarterly average recorded in over 11 years. This is nearly six percent below the 2005-2007 average and 10 percent below the highs recorded in late 2008. In addition, while not specific to cash-out refinancing, we continue to see prudent behavior on the part of borrowers. Some 40 percent of Q2 2016 rate/term refinances involved the borrower reducing their loan term, the highest share of term reductions since late 2013/early 2014.”

This month, Black Knight also found that the remaining inventory of loans in active foreclosure is declining at the fastest rate since 2014, and the rate of reduction has been accelerating throughout 2016.
emphasis added

Click on graph for larger image.

This graph from Black Knight shows first lien Cash-out Refinances.

From Black Knight:

• The roughly 350,000 cashout refinances in Q2 2016 accounted for 42 percent of all refinances in the quarter, and marked the ninth consecutive quarterly increase in cash-out lending in terms of both count and amount of equity tapped

• Cash-outs are helping to prop up the refinance market: their 42 percent share is up from only 30 percent in early 2015 as interest rates dropped; though overall refi volumes are down nine percent from Q1 2015, rate/term refinances are actually down 25 percent

• The $22.6 billion tapped via cash-out refinances in Q2 is the largest equity sum tapped since Q2 2009; that’s still nearly an 80 percent lower equity draw than at the peak in Q3 2005

• This works out to approximately $65,000 in equity tapped per borrower, which is down slightly from Q1 but $6,000 higher than one year ago

The second graph shows the credit scores and Loan-to-value (LTV) for cash-out refinance activity. From Black Knight:

• Historically speaking, today’s cash-out refinance borrowers continue to present a relatively low risk profile

• The average credit score of 748 among Q2 cash-out refinance borrowers is 67 points higher than that of the low point recorded in Q3 of 2006, and is nearly 60 points higher than the overall average credit score from 2005 through 2007

• Post-cash-out average loan-to-value ratios (LTVs) remain low at 66 percent; this is slightly higher than in Q1, but is the second lowest quarterly average recorded in over 11 years - nearly six percent below the 2005-2007 average and 10 percent below the highs recorded in late 2008

Cash-out refinance activity is picking up, but the level is still fairly low - and the quality of the loans (and LTV) is good.  There is much more in the mortgage monitor.

by Calculated Risk on 10/02/2016 07:35:00 PM

Weekend:
• Schedule for Week of Oct 2, 2016

Monday:
• Early, Reis Q3 2016 Office Survey of rents and vacancy rates.

• At 10:00 AM, ISM Manufacturing Index for September. The consensus is for the ISM to be at 50.2, up from 49.4 in August. The employment index was at 48.3%, and the new orders index was at 49.1%.

• Also at 10:00 AM, Construction Spending for August. The consensus is for a 0.3% increase in construction spending.

• All Day, Light vehicle sales for September. The consensus is for light vehicle sales to increase to 17.4 million SAAR in September, from 16.9 million in August (Seasonally Adjusted Annual Rate).

From CNBC: Pre-Market Data and Bloomberg futures: S&P futures and DOW futures are up slightly (fair value).

Oil prices were up over the last week with WTI futures at $47.88 per barrel and Brent at $50.19 per barrel.  A year ago, WTI was at $46, and Brent was at $47 - so oil prices are UP year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.22 per gallon (down less than $0.10 per gallon from a year ago).